Omnichannel retailer Macy’s, Inc. (M) operates stores, mobile applications, as well as websites under the brand names — Macy’s, Bloomingdale’s, and Bluemercury. The retailer exceeded sales expectations across all brands in its last quarter. M’s stock gained 52.6% so far this year and 161.7% over the past year. Strong demand for health & wellness, pet, home décor, and other luxury items, coupled with accelerated use of the company’s Polaris strategy, which includes investing heavily in digital platforms, should enable M to maintain growth this year and beyond.

Given the company’s promising financial and solid growth prospects, M looks undervalued at the current price level. The stock’s forward non-GAAP P/E ratio of 8.72 is 47.5% lower than the industry average of 16.59.

The company’s cash stood at $1.8 billion at the end of the first quarter of 2021, primarily due to more efficient use of capital compared to pre-pandemic levels. Its digital sales surged 34% year-over-year, while comparable sales increased 62.5% on an owned basis compared to the first quarter of 2020.

Here is what we think could shape M’s performance in the near term:

New-Store Concept

On July 7, M’s Bloomingdale’s announced the first location of the brand’s all-new store concept – “Bloomie’s.” The 22,000 square-foot store comprising technology-enabled stylist services, luxury brands, and vibrant restaurant experience, is expected to open on August 26, 2021, in Fairfax, Virginia. Furthermore, the new store’s personalization and customization services, along with in-store or curbside pickup should position it to drive its sales further in the upcoming months. With people socializing more than before, as the pace of inoculation accelerates, and consumer spending picking up steam, M’s new-store could be well-positioned to benefit.

Solid Growth Potential

The consensus EPS estimate of $0.13 for the current quarter, ending July 2021, indicates a 116% improvement year-over-year. Moreover, its EPS is expected to rise 94.7% in the next quarter ending October 2021, and 197.3% year-over-year to $2.15 in fiscal 2022. Also, the company has an impressive earnings surprise history as it beat the consensus EPS estimates in each of the trailing four quarters. Analysts expect M’s revenue to rise 27.1% year-over-year to $22.04 billion in the current year.

Impressive Financials

M’s net sales increased 56% year-over-year to $4.71 billion in the first quarter ended May 1, 2021. Its comparable-store sales grew 62.5% year-over-year on an owned basis, while credit card revenues expanded 3.4% from the prior-year quarter. The company’s operating income came in at $215 million, compared to an operating loss of $4.12 billion in the prior-year period. Also, M reported a net income of $103 million for this quarter, compared to a net loss of $3.58 billion in the first quarter of 2020.

Discounted Valuation

M’s forward PEG ratio of 0.73x is 42% lower than the industry average of 1.25x. And in terms of forward EV/Sales, the company is currently trading at 0.54x, 65.2% lower than the 1.56x industry average. The stock’s 1.70 and 0.26 forward Price/Book and Price/Sales ratios compare favorably with 3.67 and 1.32 industry averages, respectively.

POWR Ratings Reflect Rosy Prospects

M has an overall rating of B, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. M has a grade of B for Growth, consistent with analysts’ expectation that its revenue and earnings will grow.

Also, in terms of Value and Momentum Grade, M has a B. The stock’s lower-than-industry valuation multiples are in sync with the Value grade. And its price returns over the past year justify the Momentum grade.

Click here to see the additional POWR Ratings for M (Quality, Stability, and Sentiment). The stock is ranked #34 of 65 stocks in the A-rated Fashion & Luxury industry.

If you’re looking for other top-rated stocks in the same industry, with an Overall POWR Rating of A or B, you can access them here.

Bottom Line

M’s robust portfolio of popular brands enhanced digital platforms, and new store features position it uniquely to capitalize on people’s return to the pre-pandemic lifestyle. The improved macroeconomic trends and its seamless omnichannel shopping experience should help the company deliver strong results over the next few quarters. So, we think the stock is an attractive value pick right now.

M shares were trading at $17.19 per share on Thursday afternoon, up $0.02 (+0.12%). Year-to-date, M has gained 52.80%, versus a 16.13% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

More Resources for the Stocks in this Article